Weekly Update - A Summary Of Recent Developments In Insurance, Reinsurance And Litigation Law - 08/11

This Week's Caselaw

Argo v Liberty

Breach of warranty, waiver and affirmation/damages for misrepresentation

A vessel was purchased for scrap and was to be towed as a dead ship from the US Gulf to India. Insurance was purchased for the journey. After the vessel sank, cover was declined and litigation commenced in the US. After the insurer won in the US courts, a new claim was brought against the insurer in England. In the course of the English proceedings, the insurer raised two new defences (in addition to the defences already raised in the US proceedings) - namely, breach of a warranty in the policy that "warranted no release, waivers or "hold harmless" given to tug or towers" and also that it was entitled to avoid because of misrepresentations. Mackie J held as follows:

There had been a breach of the hold harmless warranty. He rejected an argument by the insured that the warranty should be subject to an implied condition that it is not to apply where the insured accepts contracts limiting the liability of a tug in accordance with standard practice. The insurer could not be taken to know about the standard form or to have agreed to subject the express wording of the warranty to the terms of that standard form. However, the insurer had, on the facts, waived by estoppel its right to rely on the breach of warranty. Although the insurer had reserved the right to rely on additional points to those pleaded in the US proceedings, that had only been subject to new information coming to light. Here, the insurer had been aware of all the defences which it could raise at the time of the US proceedings. By not raising the hold harmless warranty defence in the 7 years between the US and the English proceedings, it had represented by conduct to the insured that it would not rely on this defence. Reliance had been placed on that representation and it would be unfair to allow the insurer to go back on that representation now. The insurer had also elected to affirm the policy and so could not avoid for misrepresentation or non-disclosure. Here, the insurer was refusing to pay by relying on rights under the policy. Nor did it assist the insurer to argue that its US lawyers had not considered the issue of avoidance: "Liberty might not have applied its mind directly to the avoidance issue but the test is objective". Although the failure to return the premium was said to not be determinative, it was nonetheless a "powerful factor", especially where the premium was high and so "there would be a reason, other than clerical inefficiency, for insurers to retain it". It was also accepted that silence has to be significant to amount to an election - but here there had been almost seven years of silence. The insurer claimed that it was entitled to damages for misrepresentation if it was no longer entitled to avoid. Mackie J accepted that HIH v Chase Manhattan [2001] establishes that a claim for damages for misrepresentation based on section 2(1) of the Misrepresentation Act 1967 could be made in the context of a contract of insurance. The claim for damages was not, therefore, "bad law". However, he suggested that the Court of Appeal should decide whether such damages are available where the right to avoid has been lost. Nevertheless, he stated that: "I will decide only that on the facts known to me about this case the claim for damages which may in...